While investors have been bidding up almost all asset classessince sentiment spread that the Federal Reserve would implement the so-called "QE2" round, that could change if the central bank's action doesn't have the desired impact, said El-Erian, who helps run the world's largest group of bond funds.

"Equity prices at these levels assume an effective policy response. Effective means it will impact the real economy," he said. "Where you end up fundamentally depends on your vision of the economy."

He compared the economy to a rocket, in which it won't be enough for it to merely gain speed but rather will require enough momentum to break from the current pattern.

"The rocket has to achieve escape velocity," he said. "It's not enough for it to go up—it has to go up sharply to achieve escape velocity. The question is: What's the fuel for that escape velocity?

"There's good fuel, which is private-sector 'animal spirits.' That is what we all should be looking for. There's bad fuel, which is continuous policy injections, because that has consequences—the dollar, gold, etc.—and the judgment becomes whether that characterization is correct. Do we really need escape velocity or not?"

El-Erian cautioned that the big run-up in stocksover the past six weeks could unwind if once again the unconventional means of fiscal stimulus fail to live up to expectations.

"The risk is that this may be ineffective again," he said. "In fact, the big story of the last year and a half is every time we have had a policy action outcomes have fallen short of expectations. So there's something broken in the transmission mechanism."

For investors, "there's lots of money to be made as long as you keep your eye on the trio of benefits, costs and risks," he said, but he added later regarding QE2: "What's going to happen I suspect is when the Fed comes in, the stuff it buys is going to stay where it is. The stuff it doesn't buy is going to be more shaky."